All things considered, the year 2023 was a year of economic stability, although it saw its fair share of political tensions towards the end, especially in the Middle East.
Most importantly, rampant global inflation finally came under control in the financial year 2023. The average annual inflation rate in the US and the EU was around 3% in 2023, down from 8-10% in the previous financial year.
This was partly achieved through the curbing of hydrocarbon prices. Crude oil prices hovered around USD80 per barrel in 2023, while a barrel had fetched an average of USD101 in 2022.
The curbing of crude prices, in turn, was achieved thanks to sufficient supply.
While OPEC+ pumped some 38-40 million barrels per day (bpd) in 2023, the US along with an increasing number of non-OPEC producers canceled out almost all supply shortages in the energy market.
There is every sign that this state of affairs will continue in 2024, though potential destabilizing factors are numerous.
The most obvious cause for concern is the ongoing conflict in the Middle East, namely the Israel-Palestine conflict, which has already albeit indirectly undermined global shipping in the Red Sea and the Suez Canal.
A potential escalation of tensions between the West and Iran is a serious threat to the stability of energy markets in 2024, as it may cast doubt on the security of the Strait of Hormuz—the only gateway and access point to the Persian Gulf, where a third of the world’s crude oil comes from.
All this has put the global energy market in a paradoxical situation: while most forecasts are indicative of a stable year in the energy markets, out-of-control risk factors are mounting.
Modest economic growth keeping crude prices in check
Almost all forecasts about oil prices in 2024 are based on the prospects of weak to moderate economic growth in the year ahead. Do not lose heart, however, because of the word “weak.” Modest economic growth is not per se an ominous sign.
Indeed, a slowdown in global economic growth often follows periods of rampant inflation. If anything, this is a sign that the demon of inflation has been defeated—at least for the time being.
The Organization for Economic Cooperation and Development (OECD), has projected that the the 2.9% growth in global GDP which was registered in 2023 will be followed by a “mild slowdown to 2.7% in 2024 and a slight improvement to 3.0% in 2025,” adding that Asia will continue to “account for the bulk of global growth in 2024-25.”
Asia and its growing economies also happen to be the largest global consumers of crude oil, creating the bulk of demand in hydrocarbon markets. With Asian economies continuing to grow slowly but surely, no jumps in demand are expected to shock the oil market in 2024.
The rise of new suppliers
Another factor which will likely keep the oil prices within a reasonable range is the growing market share of non-OPEC+ suppliers, which as mentioned previously will strike a balance in the market.
The market share of non-OPEC+ oil exporters will reach new highs in 2024, partly due to the cartel’s own output cuts and partly due to the rise of new suppliers. The exit of some former members such as Angola is also an influential factor.
In as early as the 2000s, the organization itself had predicted this. “Our projections show an 18 per cent rise in world oil output from non-OPEC countries in 2002–25, mainly from Russia, the Caspian and Africa,” OPEC’s then-Acting Secretary General, Maizar Rahman, had predicted in a 2004 OPEC summit.
And that day has come! Non-members are finally in a position in 2024 to significantly influence the market prices. The competition between OPEC+ and non-OPEC+ producers will strike a balance in the market, acting as a stabilizing force.
In the spirit of fairness, let us also look at the market from the vantage point of oil exporting nations. Although it may sound counterintuitive, the forecast that 2024 is unlikely to be a year of rising oil prices suits most oil producing economies—both OPEC+ and non-OPEC+.
Stable and fair crude prices mean predictability in the market. This means that economic planning and budgeting can be more straightforward, while longterm foreign investment constitutes to increase during this period of market stability.
At the same time, sudden spikes in energy costs may lead to geopolitical tensions, which also affect the oil producing nations themselves. And if there is one thing the world does not need in 2024, it is more geopolitical tensions.
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